Exchange traded funds (“ETF”s) allow an investor to benefit from an investment strategy that the fund outlines to its investors and potential investors. ETFs are described in U.S. Pat. No. 7,444,300 entitled “Method and System for Improved Fund Investment and Trading Processes” issued to Broms et al on Oct. 28, 2008 and such patent is hereby incorporated by reference in its entirety.
An investor can select an exchange traded fund that corresponds to the investor's desired investment strategy. An ETF may track one or more indices (e.g. the S&P 500, etc) or utilize a mix of securities whose values are periodically maintained within certain percentage ranges of assets, and therefore be passively managed, may be actively managed, where the manager of the fund selects investments that meet an overall investment strategy, or may have both active and passive components, for example, tracking an index for 60% of the value of the fund, and investing in stocks.
An ETF may distribute funds to its investors. For example, conventional ETFs may distribute an amount equal to the earnings of the ETF at the end of every quarter. This could cause the distribution amounts to fluctuate, if, for example, the earnings of the ETF were to fluctuate on a quarter by quarter basis.
Some investors would prefer a more stable distribution, and ETFs can provide such a stable distribution. For example, U.S. Patent application 20070112657 entitled, “Exchange Traded Fund or the Like Related to Basket of Fixed Income Securities Having Similar Maturities” filed by John Huber on Oct. 3, 2006, describes the use of an ETF to purchase fixed income securities to diversify the risk of an investor who might otherwise purchase a single fixed income security. The fund buys fixed income securities, distributes the interest it receives, and then, when the fixed income securities have matured, distributes the principal and shuts down. This approach solves the problem of predictable income but may not provide the highest available returns for the risk taken, and it ends, requiring the investor to find another investment, which may not provide the return of the original.
Investors may have investment goals in addition to a stable distribution. For example, an investor may wish to receive a minimum distribution from an ETF, but have the opportunity to receive higher distributions than the minimum distribution will provide. Conventional ETFs have not provided such distributions.
What is needed is a system and method that can allow an ETF to supply its investors with either a predictable distribution, or a distribution that may meet other investment needs, while also providing the opportunity for the investors to earn more than such a distribution.